Use up a US AMT carryforward while paying tax also? - david ingram expert US CANADA cross border non-resident income tax help an

 
David:

Second question.  I haven't seen this topic either in the three years of Cen-tapedes I've kept in my archive.

Q: My spouse and I are US Citizens, resident in British Columbia for the last few years, so we are blessed with the opportunity to pay taxes to both the US (federal, no state, married filing jointly), and Canada and BC.

We have a US Alternative Minimum Tax (AMT) carryforward from the last several years. Some years we have been liable for US AMT tax, so haven't been able to draw down this carryforward amount.  In what circumstance would we be able to use this AMT carryforward to reduce our total tax in a future year?

What puzzles me is this. My naive understanding is that, as taxpayers to both the USA and Canada, both the US and Canada assess taxes on us, but credit whatever we paid to the other jurisdiction. Thus if we get a credit or deduction in one jurisdiction that the other doesn't recognize, it doesn't lower our total tax. It just lowers the tax to the one country, and increases the tax to the other country by the same amount. It doesn't change the total.  Do I understand correctly?

I worry that if we were to apply our AMT carryforward, it might reduce our US taxes, but also our Canadian foreign tax credits. Thus the amount of US tax reduce by the AMT carryforward would just become payable to Canada, and our total tax wouldn't change.  We'd lose the carryforward for no benefit.

If my understanding is correct, then how to people who have a US AMT carryforward and move to Canada ever get value for that carryforward? Do we have to become non-residents of Canada for a few years?

Thanks for the great tax information service,
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david ingram replies:

You may have noticed that i haven't answered any questions on this site since Nov 25 -  I have so many to answer now that it will never happen.  However, I am trying to answer clients' questions where I can.

Tonight is the first time I have answered questions in three weeks.

Your question is a good one.  Canada usually gives credit for taxes paid to the US.  At the moment, they are allowing the tax you paid to the US including the AMT.when it has been created by US income.  If there is no US income the AMT is clearly an extra tax for you but does go into an AMT account and CAN BE RECOVERED if you move back tot he US and your income is low enough 

Remember, that persons living  and working in the USA only are also subject to AMT if their income fits the profile.

If you remain in Canada as i think you intend to, the AMT paid to the US is likely lost to you in terms of recovery.

Hope this helps

david
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